Chief Financial Officer and Chief Operating Officer

Transcription

1 Management s responsibility for financial reporting The accompanying financial statements have been prepared by RBC Global Asset Management Inc. ( RBC GAM ), as manager of the Phillips, Hager & North Investment Funds (the Funds ) and approved by the Board of Directors of RBC GAM. We are responsible for the information contained within these financial statements. We have maintained appropriate procedures and controls to ensure that relevant and reliable financial information is produced. The financial statements have been prepared in accordance with accounting principles generally accepted in Canada (and they include certain amounts that are based on estimates and judgments). The significant accounting policies, which we believe are appropriate for the Funds, are described in Note 3 to the financial statements. Although the Board of Directors of RBC GAM is solely responsible for approving the financial statements and overseeing management s financial reporting responsibilities, the Financial Advisory Committee of the Board of Governors provides advice to RBC GAM concerning financial reporting, the audit process and internal controls. Please see The Role of the Board of Governors at the end of this report. Deloitte LLP, Independent Registered Chartered Accountants, have performed an independent audit of the financial statements in accordance with Canadian generally accepted auditing standards. Their report is set out on the next page. John S. Montalbano, cfa Chief Executive Officer RBC Global Asset Management Inc. frank Lippa, CPA, CA Chief Financial Officer and Chief Operating Officer RBC Global Asset Management Inc. March 1, 2013

2 independent auditor s report To the Unitholders of: Phillips, Hager & North Canadian Money Market Fund Phillips, Hager & North $U.S. Money Market Fund Phillips, Hager & North Short Term Bond & Mortgage Fund Phillips, Hager & North Bond Fund Phillips, Hager & North Community Values Bond Fund Phillips, Hager & North Total Return Bond Fund Phillips, Hager & North Inflation-Linked Bond Fund Phillips, Hager & North High Yield Bond Fund Phillips, Hager & North Short Inflation-linked Bond Fund Phillips, Hager & North Long Inflation-linked Bond Fund Phillips, Hager & North Monthly Income Fund Phillips, Hager & North Balanced Fund Phillips, Hager & North Community Values Balanced Fund Phillips, Hager & North Dividend Income Fund Phillips, Hager & North Canadian Equity Fund Phillips, Hager & North Community Values Canadian Equity Fund Phillips, Hager & North Canadian Equity Value Fund Phillips, Hager & North Canadian Equity Underlying Fund Phillips, Hager & North Canadian Growth Fund Phillips, Hager & North Canadian Income Fund Phillips, Hager & North Vintage Fund Phillips, Hager & North U.S. Dividend Income Fund Phillips, Hager & North U.S. Multi-Style All-Cap Equity Fund Phillips, Hager & North U.S. Equity Fund Phillips, Hager & North Currency-Hedged U.S. Equity Fund Phillips, Hager & North U.S. Growth Fund Phillips, Hager & North Overseas Equity Fund Phillips, Hager & North Currency-Hedged Overseas Equity Fund Phillips, Hager & North Global Equity Fund Phillips, Hager & North Community Values Global Equity Fund Phillips, Hager & North LifeTime 2015 Fund Phillips, Hager & North LifeTime 2020 Fund Phillips, Hager & North LifeTime 2025 Fund Phillips, Hager & North LifeTime 2030 Fund Phillips, Hager & North LifeTime 2035 Fund Phillips, Hager & North LifeTime 2040 Fund Phillips, Hager & North LifeTime 2045 Fund BonaVista Global Balanced Fund BonaVista Canadian Equity Value Fund (collectively referred to as the Funds ) We have audited the accompanying financial statements of each of the Funds, which comprise the statement of investment portfolio as at, the statements of net assets as at and 2011 and the statements of operations and changes in net assets for the years then ended, and a summary of significant accounting policies and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as at and 2011 and the results of their operations and changes in their net assets for the years then ended in accordance with Canadian generally accepted accounting principles. Chartered Accountants, Licensed Public Accountants March 1, 2013 Toronto, Ontario

3 2012 ANNUAL FINANCIAL STATEMENTS Statement of Investment Portfolio (in $000s) coupon fair % of Net Par Value Security rate % maturity cost Value assets AUSTRALIA BONDS $ Brookfield Infrastructure Finance Pty Ltd. CAD Oct-17 $ $ TOTAL AUSTRALIA BONDS CANADIAN BONDS CORPORATE International Inc Nov International Inc Apr Access Justice Durham Ltd Aug Access Roads Edmonton Ltd Sep Aéroports de Montréal Apr Aéroports de Montréal Sep AGT Ltd Sep Alliance Pipeline LP Jun Alliance Pipeline LP Dec Alliance Pipeline LP Dec Alliance Pipeline LP Dec AltaGas Ltd Jun AltaGas Ltd Sep AltaLink Investments LP Dec AltaLink Investments LP Jun AltaLink LP Sep AltaLink LP Mar AltaLink LP Nov AltaLink LP Jun American Express Canada Credit Corp Apr American Express Canada Credit Corp Oct Bank of Montreal Apr Bank of Montreal Jun Bank of Montreal Oct Bank of Montreal Jun Bank of Montreal Aug Bank of Montreal Dec Bank of Montreal May Bank of Nova Scotia Nov Bank of Nova Scotia Mar Bank of Nova Scotia Dec Bank of Nova Scotia Jun Bank of Nova Scotia Mar Bank of Nova Scotia Oct Bank of Nova Scotia Jan bcimc Realty Corp Jan BC Tel Nov BC Tel Apr Bell Aliant Regional Communications LP Feb Bell Canada Jun Bell Canada Mar Bell Canada Jun Bell Canada May Bell Canada May Bell Canada Feb BMO Subordinated Notes Trust Sep Brookfield Asset Management Inc Apr The accompanying notes are an integral part of these financial statements.

4 Statement of Investment Portfolio (in $000s) coupon fair % of Net Par Value Security rate % maturity cost Value assets CORPORATE (cont.) $ Brookfield Asset Management Inc Mar-21 $ $ Brookfield Asset Management Inc Jun Brookfield Renewable Power Inc Nov BRP Finance ULC Feb Calloway Real Estate Investment Trust Oct Canada Safeway Ltd Mar Canadian Imperial Bank of Commerce Nov Canadian Imperial Bank of Commerce Dec Canadian Imperial Bank of Commerce Mar Canadian Imperial Bank of Commerce May Canadian Imperial Bank of Commerce Jan Canadian Imperial Bank of Commerce Nov Canadian Pacific Railway Ltd Nov Canadian Utilities Ltd Nov Canadian Utilities Ltd May Capital Desjardins Inc May Capital Desjardins Inc Nov Cards II Trust Sep Caterpillar Financial Services Ltd Jun Centra Gas Ontario Inc Oct Central 1 Credit Union Oct Centre Street Trust Jun CI Investments Inc Dec Citigroup Finance Canada Inc Mar Citigroup Finance Canada Inc May CU Inc Nov CU Inc Aug CU Inc Nov CU Inc Apr CU Inc Mar CU Inc May CU Inc Oct CU Inc May CU Inc Mar CU Inc Oct CU Inc Sep Emera Inc Oct Emera Inc Dec Emera Inc Dec Enbridge Gas Distribution Inc Jan Enbridge Gas Distribution Inc Dec Enbridge Inc Sep Enbridge Inc Mar Enbridge Inc Feb Enbridge Inc Dec Enbridge Inc Sep Enbridge Income Fund Holdings Inc Dec Enbridge Income Fund Holdings Inc Jan Enbridge Pipelines Inc Nov Enbridge Pipelines Inc Nov Enbridge Pipelines Inc Dec Enbridge Pipelines Inc Nov Enbridge Pipelines Inc Apr Encana Corp Jan Enersource Corp Apr The accompanying notes are an integral part of these financial statements.

5 Statement of Investment Portfolio (in $000s) coupon fair % of Net Par Value Security rate % maturity cost Value assets CORPORATE (cont.) $ Enersource Corp Apr-41 $ $ EPCOR Utilities Inc Mar EPCOR Utilities Inc Jan EPCOR Utilities Inc Nov FortisBC Energy Inc Dec FortisBC Inc Nov Gaz Metropolitain Inc Jun Gaz Metropolitain Inc Jul George Weston Ltd Mar Golden Credit Card Trust May Greater Toronto Airports Authority Jun Greater Toronto Airports Authority Oct Great-West Lifeco Inc Nov Horizon Holdings Inc Jul HSBC Bank Canada May HSBC Bank Canada Nov HSBC Bank Canada Jan HSBC Bank Canada Oct Hydro One Inc Nov Hydro One Inc Oct Hydro One Inc Jun Hydro One Inc Jun Hydro One Inc Jan Hydro One Inc May Hydro One Inc Mar Hydro One Inc Mar Hydro One Inc Jul Hydro One Inc Apr Inter Pipeline Fund Jul Loblaw Companies Ltd Jan Loblaw Companies Ltd Mar Loblaw Companies Ltd Jun Loblaw Companies Ltd Mar Lower Mattagami Energy LP Oct Lower Mattagami Energy LP May Manitoba Telecom Services Inc Oct Manitoba Telecom Services Inc Dec Maritimes & Northeast Pipeline LP Nov MI Developments Inc Dec Molson Coors Capital Finance ULC Sep National Bank of Canada Jan Nova Gas Transmission Ltd May Nova Scotia Power Inc Aug Nova Scotia Power Inc May Nova Scotia Power Inc Aug Nova Scotia Power Inc Nov Nova Scotia Power Inc Jul Nova Scotia Power Inc Jun Ontrea Inc Apr OPB Finance Trust Jul Pembina Pipeline Corp Oct Plenary Properties LTAP LP Aug Plenary Properties LTAP LP Jan Rogers Communications Inc Mar Rogers Communications Inc Nov The accompanying notes are an integral part of these financial statements.

6 Statement of Investment Portfolio (in $000s) coupon fair % of Net Par Value Security rate % maturity cost Value assets CORPORATE (cont.) $ Rogers Communications Inc Aug-40 $ $ Rogers Communications Inc Mar Royal Bank of Canada* Jun Royal Bank of Canada* Jan Royal Bank of Canada* Jul Royal Bank of Canada* Dec Royal Bank of Canada* Jan Royal Bank of Canada* Apr Royal Bank of Canada* Dec Shaw Communications Inc Nov Sobeys Inc Oct Sobeys Inc Jun Sun Life Capital Trust II Dec Sun Life Financial Inc Jun TELUS Corp May TELUS Corp Apr Teranet Holdings LP Dec Teranet Holdings LP Dec Teranet Holdings LP Dec Teranet Holdings LP Jun Terasen Gas Inc Sep Terasen Gas Inc Sep Terasen Gas Inc May Terasen Gas Inc Oct Terasen Gas Inc Feb Terasen Gas Vancouver Island Inc Dec The Standard Life Assurance Co of Canada Sep Thomson Reuters Corp Mar Thomson Reuters Corp Sep Toronto-Dominion Bank Jun Toronto Hydro Corp May Toronto Hydro Corp Nov Toronto Hydro Corp Nov Toronto Hydro Corp Nov TransAlta Corp May TransCanada PipeLines Ltd Mar Union Gas Ltd Jun Union Gas Ltd Apr Union Gas Ltd Aug Union Gas Ltd Nov Veresen Inc Mar Veresen Inc Nov Viking Rideau Mar Wells Fargo Financial Canada Corp Dec Wells Fargo Financial Canada Corp Nov Wells Fargo Financial Canada Corp Jun Wells Fargo Financial Canada Corp Feb Wells Fargo Financial Canada Corp Jul Westcoast Energy Inc Jan Westcoast Energy Inc Sep Westcoast Energy Inc Mar Westcoast Energy Inc Oct Winnipeg Airport Authority Inc Nov The accompanying notes are an integral part of these financial statements.

7 Statement of Investment Portfolio (in $000s) coupon fair % of Net Par Value Security rate % maturity cost Value assets FEDERAL $ Canada Housing Trust No Mar-20 $ $ Canada Housing Trust No Jun CBC Monetization Trust May Government of Canada Jun Government of Canada Sep Government of Canada Sep Government of Canada Jun Government of Canada Jun Government of Canada Jun Government of Canada Jun Government of Canada Jun PROVINCIAL/MUNICIPAL Hospital for Sick Children Dec Hydro-Quebec Aug Municipal Finance Authority of British Columbia Jun Ontario Electricity Financial Corp May Ontario Electricity Financial Corp May Ontario Electricity Financial Corp Jun Province of New Brunswick Jun Province of Ontario Jun Province of Ontario Jul Province of Ontario Sep Province of Ontario Dec Province of Ontario Jun Province of Ontario Jun Province of Ontario Mar Province of Ontario Jun Province of Ontario Mar Province of Ontario Jun Province of Ontario Jun Province of Ontario Jun Province of Ontario Jun Province of Ontario Jun Province of Quebec Dec Province of Quebec Jan Province of Quebec Apr Province of Quebec Oct Province of Quebec Jun Province of Quebec Dec Province of Quebec Dec Province of Quebec Dec Province of Quebec Dec TransLink Nov TOTAL CANADIAN BONDS UNITED KINGDOM BONDS BAA Funding Ltd. CAD Jul National Grid Electricity Transmission Plc. CAD Sep National Grid Electricity Transmission Plc. CAD Nov TOTAL UNITED KINGDOM BONDS The accompanying notes are an integral part of these financial statements.

8 Statement of Investment Portfolio (in $000s) coupon fair % of Net Par Value Security rate % maturity cost Value assets UNITED STATES BONDS $ Anheuser-Busch InBev Worldwide Inc. CAD Jan-16 $ $ Bank of America Corp. CAD Jun Goldman Sachs Group Inc. CAD Apr JPMorgan Chase & Co. CAD Sep Merrill Lynch & Co. Inc. CAD May Molson Coors International LP CAD Oct TOTAL UNITED STATES BONDS TOTAL BONDS MORTGAGE-BACKED SECURITIES Data Centres Trust Sep Equitable Trust Jan Merrill Lynch Mortgage Loans Inc Sep Peoples Trust Oct TOTAL MORTGAGE-BACKED SECURITIES MORTGAGES CMHC Insured % Jun 15, % Jul 01, % Jan 01, % Jan 01, % Jun 05, % Jun 05, % Jun 05, % Nov 01, TOTAL MORTGAGES SHORT-TERM INVESTMENTS Bay Street Funding Trust - Class A Bell Canada International Inc Caisse Centrale Desjardins Canadian Master Trust - Series A Caterpillar Financial Services Ltd Central 1 Credit Union Clarity Trust Darwin Receivables Trust - Senior Notes Enbridge Inc Fusion Trust HSBC Bank Canada Inter Pipeline Fund King Street Funding Trust McCain Financial Canada Merit Trust - Senior Notes National Bank of Canada Nova Scotia Power Inc OMERS Realty Corp Prime Trust - Senior Notes Reliant Trust TransCanada PipeLines Ltd Zeus Receivables Trust - Senior Notes TOTAL SHORT-TERM INVESTMENTS TOTAL INVESTMENTS $ OTHER NET ASSETS NET ASSETS $ * Investment in related party (see note 7 in the generic notes). Short-term investments, which may be made up of treasury bills, commercial paper, term deposits and discount notes, and are grouped by issuer, earn interest at rates ranging from 1.00% to 1.31% and mature between January 2, 2013 and June 17, The accompanying notes are an integral part of these financial statements.

9 Financial Statements Statements of Net Assets (in $000s except per unit amounts) December 31 (see note 2 in the generic notes) ASSETS Investments at fair value $ $ Cash Due from investment dealers Subscriptions receivable Dividends receivable, interest accrued and other assets TOTAL ASSETS LIABILITIES Due to investment dealers Redemptions payable Accounts payable and accrued expenses TOTAL LIABILITIES NET ASSETS $ $ Investments at cost $ $ NET ASSETS, END OF PERIOD SERIES C $ $ ADVISOR SERIES $ $ SERIES B* $ $ SERIES D $ $ SERIES F $ $ SERIES O $ $ NET ASSETS PER UNIT, END OF PERIOD SERIES C $ $ ADVISOR SERIES $ $ SERIES B* $ $ SERIES D $ $ SERIES F $ $ SERIES O $ $ NET ASSET VALUE (TRANSACTIONAL NAV) PER UNIT, END OF PERIOD (see note 3 in the generic notes) SERIES C $ $ ADVISOR SERIES $ $ SERIES B* $ $ SERIES D $ $ SERIES F $ $ SERIES O $ $ Statements of Operations (in $000s except per unit amounts) For the periods ended December 31 (see note 2 in the generic notes) INCOME (see note 3 in the generic notes) Interest $ $ TOTAL INCOME (LOSS) EXPENSES (see notes Fund Specific Information) Management fees Administration fees Board of Governors costs 4 4 GST/HST TOTAL EXPENSES NET INVESTMENT INCOME (LOSS) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments Net gain (loss) on foreign currencies and other net assets 893 Change in unrealized gain (loss) on investments (99 923) NET GAIN (LOSS) ON INVESTMENTS INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ $ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS SERIES C $ $ ADVISOR SERIES $ $ 873 SERIES B* $ $ 352 SERIES D $ $ SERIES F $ $ SERIES O $ $ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS PER UNIT SERIES C $ 0.30 $ 0.82 ADVISOR SERIES $ 0.30 $ 0.82 SERIES B* $ $ 0.85 SERIES D $ 0.36 $ 0.88 SERIES F $ 0.36 $ 0.88 SERIES O $ 0.43 $ 0.93 * All outstanding Series B units were redesignated as Series D units effective July Approved by the Board of Directors of RBC Global Asset Management Inc. John S. Montalbano Director Doug Coulter Director The accompanying notes are an integral part of these financial statements.

10 Financial Statements Statements of Changes in Net Assets (in $000s) For the periods ended December 31 series c advisor Series series B* series D (see note 2 in the generic notes) Net Assets Beginning of period $ $ $ $ $ $ $ $ Increase (decrease) from operations Early redemption fees Proceeds from units issued Proceeds from reinvestment of distributions Payments on redemption of units (50 375) (54 125) (19 335) (1 244) (1 319) ( ) ( ) TOTAL UNIT TRANSACTIONS (1 157) (25 636) Distributions from net income (5 502) (4 314) (1 000) (313) (139) (25 927) (27 067) Distributions from net gains (3 066) (1 076) (575) (124) (25) (11 201) (4 861) Distributions from capital TOTAL DISTRIBUTIONS (8 568) (5 390) (1 575) (437) (164) (37 128) (31 928) TOTAL INCREASE (DECREASE) IN NET ASSETS (33 209) Net Assets End of period $ $ $ $ $ $ $ $ For the periods ended December 31 Series f series o total (see note 2 in the generic notes) Net Assets Beginning of period $ $ $ $ $ $ Increase (decrease) from operations Early redemption fees Proceeds from units issued Proceeds from reinvestment of distributions Payments on redemption of units (28 341) (31 064) ( ) ( ) ( ) ( ) TOTAL UNIT TRANSACTIONS Distributions from net income (3 376) (2 706) ( ) ( ) ( ) ( ) Distributions from net gains (1 549) (542) (96 743) (34 060) ( ) (40 688) Distributions from capital TOTAL DISTRIBUTIONS (4 925) (3 248) ( ) ( ) ( ) ( ) TOTAL INCREASE (DECREASE) IN NET ASSETS Net Assets End of period $ $ $ $ $ $ * All outstanding Series B units were redesignated as Series D units effective July The accompanying notes are an integral part of these financial statements.

11 Notes to financial statements fund specific information Financial instrument risk and capital management (see note 4 in the generic notes) Credit risk (%) The table below summarizes the Fund s credit risk exposure grouped by credit ratings as at: December 31 December 31 Rating AAA AA A BBB D 0.1 Unrated* Total * Mortgages, which represent 100% (December 31, %) of the unrated above, are all Canada Mortgage and Housing Corporation ( CMHC ) guaranteed mortgages, and therefore have the backing of an AAA rated issuer. Interest rate risk (%) The table below summarizes the Fund s exposure to interest rate risk by remaining term to maturity as at: December 31 December 31 Term to maturity Less than 1 year years years > 10 years Total As at, had prevailing interest rates risen or lowered by 1%, with all other factors kept constant, the Fund s net assets may have decreased or increased, respectively, by approximately 6.1% (December 31, %). In practice, actual results could differ from this sensitivity analysis and the difference could be material. Fair value hierarchy ($000s except % amounts) (see note 3 in the generic notes) The following is a summary of the inputs used as of and 2011 in the valuation of the Fund s financial instruments carried at fair value. level 1 Level 2 Level 3 Total Equities Mutual fund units Fixed-income and debt securities Short-term investments Derivatives assets Derivatives liabilities Total financial instruments % of total portfolio December 31, 2011 Level 1 Level 2 Level 3 Total Equities Mutual fund units Fixed-income and debt securities Short-term investments Derivatives assets Derivatives liabilities Total financial instruments % of total portfolio For the periods ended and 2011, there were no transfers of financial instruments between Level 1 and Level 2. Management fees (see note 7 in the generic notes) No management fees are payable by the Fund with respect to Series O units. Series O unitholders pay a negotiated fee directly to RBC GAM for investment-counselling services. Management fees of the other series of the Fund are calculated at the following annual percentages, before GST/HST, of the daily net asset value of each series of the Fund. Series C 1.00% Advisor Series 1.00% Series B 0.75% Series D 0.50% (note 1) Series F 0.50% Note 1: Management fees are calculated at the annual rate of 0.50% of the Series D net asset value, provided that the aggregate of all fees and other expenses (excluding the taxes included therein and commissions incurred in connection with portfolio transactions) paid or payable by Series D does not exceed an amount computed with reference to the following percentages of the net asset value of Series D. Net Asset Value of Series d percentage Up to $ From $ up to $ From $ up to $ From $ up to $ From $ up to $ Over $ Please see the generic notes at the back of the financial statements.

12 Notes to financial statements fund specific information Operating expenses (see note 7 in the generic notes) Administration fees payable by each series of the Fund are calculated at the following annual percentages, before GST/HST, of the daily net asset value of each series of the Fund. Series C 0.05% Advisor Series 0.05% Series B 0.05% Series D 0.05% Series F 0.05% Series O 0.02% Initial investments ($000s except unit amounts) Royal Bank of Canada, or one of its subsidiaries, held the following investments in the Fund as at: December 31 December Units held Series C Advisor Series Series B 50 Series D 52 Series F Value of all units $ 3 $ 3 Taxes ($000s) (see note 5 in the generic notes) The Fund had no capital or non-capital losses as at. Unitholders equity (000s) The unitholders equity of the Fund includes amounts representing units, undistributed net income (loss), realized gain (loss) on investments and unrealized gain (loss) on investments. There is no limitation on the number of units available for issue. Units are purchased and redeemed at the transactional NAV per unit. For the periods ended December 31 (see note 2 in the generic notes) Series C Opening units Issued number of units Reinvested number of units Redeemed number of units (4 667) (5 202) Ending number of units For the periods ended December 31 (see note 2 in the generic notes) Advisor Series Opening units Issued number of units Reinvested number of units Redeemed number of units (1 785) (117) Ending number of units Series B Opening units 529 Issued number of units 1 Reinvested number of units 15 Redeemed number of units (127) Ending number of units 418 Series D Opening units Issued number of units Reinvested number of units Redeemed number of units (16 378) (16 198) Ending number of units Series F Opening units Issued number of units Reinvested number of units Redeemed number of units (2 632) (2 965) Ending number of units Series O Opening units Issued number of units Reinvested number of units Redeemed number of units (84 064) (85 247) Ending number of units Investments by other related Investment Funds (000s) (see note 7 in the generic notes) The following outstanding units of the Fund were held by the following related Investment Funds as at: December 31 December Series O RBC Select Conservative Class 122 Phillips, Hager & North LifeTime 2015 Fund Phillips, Hager & North LifeTime 2020 Fund 47 8 Phillips, Hager & North LifeTime 2025 Fund 12 3 Phillips, Hager & North Balanced Pension Trust RBC Select Very Conservative Portfolio RBC Select Conservative Portfolio Total Please see the generic notes at the back of the financial statements.

13 Generic Notes to financial statements (also see Fund Specific Information) 1. The Funds The mutual funds ( Fund or Funds ) are open-ended mutual fund trusts governed by the laws of the Province of British Columbia and governed by a Master Declaration of Trust. RBC GAM is the manager and portfolio advisor of the Funds. The Funds may issue an unlimited number of units in some or all of Series C, Advisor Series, Series H, Series B, Series D, Series F, Series I and Series O. Series C units are available to investors who purchase units from authorized third-party dealers. Advisor Series units are available to all investors with an initial sales charge or low-load sales charge option. Under the initial sales charge option, investors pay a sales commission ranging from 0% to 5% of the amount invested. Under the low-load sales charge option, investors do not pay a commission. Series H units have lower fees than Series C units and are only available to investors who invest and maintain the required minimum balance. Series B units were previously available to investors who purchased units from authorized third-party dealers. All outstanding Series B units were redesignated as Series D units effective July Series D units are available to all investors and may be purchased, switched or redeemed through Phillips, Hager & North Investment Funds Ltd. ( PH&N IF ) or certain other authorized dealers (primarily discount brokers). Series F units are available to investors who have fee-based accounts with their dealer. Series I units have lower fees than Series F units and are only available to investors who invest and maintain the required minimum balance and who have accounts with dealers who have signed a fee-based agreement with RBC GAM. Series O units are only available to large private or institutional investors as may be determined from time to time on a case-by-case basis. Series O units may only be purchased, switched or redeemed through RBC GAM or, in certain circumstances, PH&N IF. 2. Financial year/period The information provided in these financial statements and notes thereto is for the 12-month periods ended or as at and In the year a Fund or series is established, period represents the period from inception to December 31 of that fiscal year. 3. Summary of significant accounting policies These financial statements have been prepared in accordance with Canadian generally accepted accounting principles ( GAAP ), which include estimates and assumptions made by management that may affect the reported amounts of assets (primarily valuation of investments), liabilities, income and expenses during the reported periods. Actual results may differ from estimates. The significant accounting policies of the Funds are as follows: Valuation of Investments The valuation methods used to calculate the daily net asset value to transact units of the Funds ( transactional NAV ), as described in the Funds Annual Information Form, are not identical to the GAAP valuation methods used to determine the financial statement net assets ( net assets ) described below. The primary difference between net assets and transactional NAV relates to valuation of actively traded securities at bid prices for net assets and at last sale prices for transactional NAV. In accordance with the Canadian Institute of Chartered Accountants ( CICA ) Handbook Section 3862, Financial Instruments Disclosures, the Funds financial instruments are measured at fair value using a three-tier hierarchy based on inputs used to value the Funds investments and derivatives. The hierarchy of inputs is summarized below: Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and Level 3 inputs for the asset or liability that are not based on observable market data (unobservable inputs). Changes in valuation methods may result in transfers into or out of an investment s assigned level. The three-tier hierarchy of investments and derivatives is included in Notes to Financial Statements Fund Specific Information. Investments are recorded at fair value, which is determined as follows: Equities Common shares, preferred shares and exchangetraded funds are valued at the closing bid price recorded by the security exchange on which the security is principally traded.

14 Generic Notes to financial statements (also see Fund Specific Information) Fixed-Income and Debt Securities Bonds, mortgage-backed securities and debentures are valued at the closing bid price quoted by major dealers in such securities. Mortgages are valued at a principal amount, which produces a yield equivalent to the prevailing rate of return on mortgages of similar type and term. Short-Term Investments Short-term investments are valued at their cost including applicable foreign exchange translations. This value, together with accrued interest, approximates fair value using closing bid prices. Options Listed options are valued at the closing bid price on the recognized exchange on which the option is traded for the long positions and the ask price for the short positions. The premium received for written options is recorded as a credit in the Statement of Investment Portfolio and adjusted daily to the fair value of the written option. Forward Contracts Forward contracts are valued at the gain or loss that would arise as a result of closing the position at the valuation date. Any gain or loss at the close of business on each valuation date is recorded in the Statements of Operations. The net receivable/payable on forward contracts is recorded separately in the Statements of Net Assets. Realized gain (loss) on foreign exchange contracts is included in Net gain (loss) on foreign currencies and other net assets in the Statements of Operations. Futures Contracts Futures contracts entered into by the Funds are financial agreements to purchase or sell a financial instrument at a contracted price on a specified future date. However, the Funds do not intend to purchase or sell the financial instrument on the settlement date; rather, they intend to close out each futures contract before settlement by entering into equal, but offsetting, futures contracts. Futures contracts are valued at the gain or loss that would arise as a result of closing the position at the valuation date. Any gain or loss at the close of business on each valuation date is recorded as Net gain (loss) from futures contracts in the Statements of Operations. The net receivable/payable on futures contracts is recorded separately in the Statements of Net Assets. Mutual Fund Unit Valuation Units of Funds are valued at their respective transactional NAV per unit received from fund companies on the relevant valuation dates. Fair Valuation of Investments (including unlisted securities) If the valuation methods described above are not appropriate, RBC GAM will estimate the fair value of an investment using established fair valuation procedures, such as consideration of public information, broker quotes, valuation models, fundamental analysis, matrix pricing, discounts from market prices of similar securities or discounts applied due to restrictions on the disposition of securities, and external fair value service providers. Procedures are in place to determine the fair value of foreign securities traded in countries outside North America daily, to avoid stale prices and to take into account, among other things, any significant events occurring after the close of a foreign market. This fair valuation process takes into account the last quoted price of the security and adjusts the price based on inputs such as related indices, changes in foreign markets and American Depository Receipts ( ADR ) prices. These securities are classified as Level 2. Foreign Exchange The value of investments and other assets and liabilities in foreign currencies is translated into Canadian dollars (U.S. dollars in the case of the Phillips, Hager & North $U.S. Money Market Fund) at the rate of exchange on each valuation date. Purchases and sales of investments, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions. Realized foreign exchange gains/losses are included in Net gain (loss) on foreign currencies and other net assets in the Statements of Operations. Valuation of Series A different net asset value is calculated for each series of units of a Fund. The net asset value of a particular series of units is computed by calculating the value of the series proportionate share of the assets and liabilities of the Fund common to all series less the liabilities of the Fund attributable only to that series. Expenses directly attributable to a series are charged to that series. Other expenses are allocated proportionately to each series based upon the relative net asset value of each series. Expenses are accrued daily. Investment Transactions Investment transactions are accounted for as of the trade date. Transaction costs, such as brokerage commissions, incurred by the Funds are recorded in the Statements of Operations for the period. The period change in the difference between fair value and average cost of securities represents unrealized gains and losses. The basis of determining the cost of portfolio assets, and realized and unrealized gains and losses on investments, is average cost.

15 Generic Notes to financial statements (also see Fund Specific Information) Income Recognition Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Other income (loss) includes income from income trusts. Distributions received from income trusts are recognized based on the nature of the underlying components, such as income, capital gains and return of capital. Other revenue includes income earned by a Fund from investments in underlying funds. Increase (Decrease) in Net Assets from Operations Per Unit Increase (decrease) in net assets from operations per unit in the Statements of Operations represents the increase (decrease) in net assets from operations by series, divided by the average units outstanding per series during the period. Early Redemption Fees Early redemption fees (short-term trading fees) are paid directly to the Fund and are designed to deter excessive trading and its associated costs. With the exception of money market funds, a Fund may apply a fee of 2% of the current value of units if the unitholder redeems or switches out units within seven days of purchasing or previously switching into a Fund. Foreign Currencies The following is a list of abbreviations used in the Statement of Investment Portfolio: AUD Australian Dollar CAD Canadian Dollar CHF Swiss Franc EUR Euro GBP Pound Sterling JPY Japanese Yen NOK Norwegian Krone SGD Singapore Dollar USD United States Dollar 4. Financial instrument risk and capital management RBC GAM is responsible for managing each Fund s capital, which is its net assets and consists primarily of its financial instruments. A Fund s investment activities expose it to a variety of financial risks. RBC GAM seeks to minimize potential adverse effects of these risks on a Fund s performance by employing professional, experienced portfolio advisors, daily monitoring of the Fund s holdings and market events, diversifying its investment portfolio within the constraints of its investment objectives, and, in some cases, periodically hedging certain risk exposures through the use of derivatives. To assist in managing risks, RBC GAM also uses internal guidelines, maintains a governance structure that oversees each Fund s investment activities and monitors compliance with the Fund s investment strategies, internal guidelines and securities regulations. Liquidity risk Liquidity risk is the possibility that investments in a Fund cannot be readily converted into cash when required. A Fund is exposed to daily cash redemptions of redeemable units. Liquidity risk is managed by investing the majority of a Fund s assets in investments that are traded in an active market and that can be readily disposed. In accordance with securities regulations, a Fund must maintain at least 90% of its assets in liquid investments. In addition, a Fund aims to retain sufficient cash and cash equivalent positions to maintain liquidity, and has the ability to borrow up to 5% of its net assets for the purpose of funding redemptions. Credit risk Credit risk is the risk that a loss could arise from a security issuer or counterparty not being able to meet its financial obligations. The carrying amount of investments and other assets represents the maximum credit risk exposure as disclosed in a Fund s Statements of Net Assets. The fair value of fixed-income and debt securities includes a consideration of the credit worthiness of the debt issuer. Credit risk exposure to over-the-counter derivative instruments is based on a Fund s unrealized gain on the contractual obligations with the counterparty. Credit risk exposure is mitigated for those Funds participating in a securities lending program (see note 6). RBC GAM monitors each Fund s credit exposure and counterparty ratings daily. Interest rate risk Interest rate risk is the risk that the fair value of a Fund s interest-bearing investments will fluctuate due to changes in market interest rates. The value of fixed-income and debt securities, such as bonds, debentures, mortgages or other income-producing securities, is affected by interest rates. Generally, the value of these securities increases if interest rates fall and decreases if interest rates rise. Currency risk Currency risk is the risk that the value of investments denominated in currencies, other than the functional currency of a Fund, will fluctuate due to changes in foreign exchange rates. The value of investments denominated in a currency other than Canadian dollars is affected by changes in the value of the Canadian dollar or a Fund s functional currency, in relation to the value of the currency in which the investment is denominated. When the value of the Canadian dollar falls in relation to foreign currencies, then the value of foreign investments rises. When the value of the Canadian dollar rises, the value of foreign investments falls.